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Elements in a Contract XXVII - Rescission

Updated on August 1, 2017

Rescission is an equitable remedy that is available for misrepresentation. The effect of misrepresentation is that the contract becomes voidable i.e. the contract continues to exist until the innocent or aggrieved party chooses to set it aside as opposed to a contract that is void where it is no longer possible to comply with the terms of the contract.

It is available for all three categories of misrepresentation and its intent is to put the parties back in the same position they were in before the contract was made.

In Car and Universal Finance Co Ltd v Caldwell (1965) the defendant sold a car to a buyer who purchased it with a nominal sum, a cheque and left behind his own car as security. Once the buyer had taken possession of the car, the defendant attempted to cash the cheque and the cheque bounced. The defendant immediately notified the police and the other relevant authorities but by that time the buyer had disappeared with the car. The buyer later sold the car to a car dealer who in turn sold it to a third party who bought it in good faith. The Court of Appeal held that the contract had been rescinded as soon as the defendant had contacted the police and the other relevant authorities. The moment he did that the car had returned to him.

It is worth comparing the decision in Car and Universal Finance Co Ltd v Caldwell (1965) with the decision in Lewis v Avery (1971) - the plaintiff sold his car to the buyer who used a false name and purchased the car with a cheque. The cheque later bounced but in the meantime the buyer had sold the car to a third party. The plaintiff brought an action in court to have the contract rescinded but the court refused. To allow the contract to be rescinded would be unfair to the purchaser who had bought the car in good in faith. Rescission is an equitable mechanism and therefore the courts will try and be as just and as fair as possible when awarding it.

There are however certain instances or circumstances where the parties cannot be put back to their original positions or their precontractual positions and in these instances or circumstances the innocent or aggrieved party may no longer be able to rescind the contract.

In Vigers v Pike (1848) which concerned the sale of a mine, the court ruled that rescission would not be possible because by the time the matter was brought before the court, the mine had been exhausted.

In Long v Lloyd (1958) the plaintiff advertised a lorry for sale and in his advertisement he stated that the lorry was in excellent condition. The defendant who’d read the advertisement contacted the plaintiff stating his intention to purchase the lorry. Before the sale was concluded the defendant test drove the lorry and found that there were numerous faults with it.

The defendant conveyed his concerns to the plaintiff who offered to pay for half the repairs and the defendant accepted. Once the sale was concluded the lorry broke down completely and the defendant wished to rescind the contract. The plaintiff sued. The court held that by accepting the plaintiff’s offer to make payments for half the repairs the defendant had waived his right to rescind the contract.

In Leaf v International Galleries (1950) the parties entered into a contract to sell and purchase a painting done by a prominent artist, John Constable, and at the time of sale both parties believed the painting to be indeed the work of the artist. 5 years down the track when the purchaser tried to resell the painting it was discovered that the painting was not a Constable and as soon as the buyer realized his mistake he tried to rescind the contract.

The courts held that the contract cannot be rescinded because it was up to the purchaser to take all the necessary measures to ensure that the painting was indeed what it was made out to be or to do so within a reasonable time. 5 years was just too long a period and the contract could not be rescinded because of a lapse of time.

The court further added that rescission is an equitable remedy and therefore it is at the discretion of the courts to either award it or otherwise.

In Zanzibar v British Aerospace (Lancaster House) Ltd (2000) the Zanzibar government purchased a jet from British Aerospace and failed to make the necessary payments. British Aerospace repossessed the jet and resold it. Several years later the Zanzibar government made a claim to have the contract rescinded because of representations made during the negotiations. The court refused. The lapse of time had caused the right of rescission to be lost.

© 2017 Kathiresan Ramachanderam and Dyarne Jessica Ward

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